Today, with the cost of even the basic necessities rising daily, the life of the common man has become difficult and with other debts and loans, the financial pressure increases by several folds. Paying a home loan EMI is a long-term financial commitment and the burden increases if you have to pay high EMIs for a long time. Most people in such situations jump at the opportunity of a home loan balance transfer. Some may not know what a balance transfer of a home loan is. Balance transfer of a home loan is when you switch your existing loan from one bank to another to avail of a lower home loan interest rate. But, is it really beneficial? Here are a few points to consider before you apply for a home loan balance transfer.
Checklist for a Home Loan Balance Transfer
1. Are You Eligible for a Home Loan Balance Transfer?
The first step before you think of a balance transfer of a home loan to a new lender is to carefully read the terms and conditions of your current loan. Many times, certain banks and policyholders do not allow you to transfer your loan from one lender to another. In such a case, you do not have any other option but to renegotiate the loan interest rates with your current lender.
2. Check the Overall Cost of Transferring the Loan
Do not jump at the opportunity of a balance transfer just by see lower interest rates. Transferring your home loan comes with several costs, like processing fees, application fees, and prepayment fees (sometimes). Most banks may also charge a transfer fee, which is charged by both your current lender and the new lender. A home loan balance transfer calculator can help you evaluate whether the costs involved in the balance transfer are less than the interest amount that you will be saving by the transfer.
3. Consider Loan Tenor Left Before the Transfer
Switching a home loan in the second half of your loan tenor or near the end is often considered to be useless as most of your interest in the Easy Monthly Instalments (EMIs) has already been paid. If you plan to transfer your home loan, it is best to do it as early in the tenor of the loan as possible as you will be paying a lower interest rate when you transfer.
4. Your Credit Rating
Your CIBIL Score or credit rating decides whether you are eligible for a balance transfer or not. If you have not been consistent in repaying old debts and EMIs on time, it will reflect poorly on your credit score or CIBIL rating. A poor credit score reduces your eligibility for a home loan balance transfer facility since the new lender will consider your credit score along with other factors. So, repay your loans and other debts on time to ensure that your credit score is high and you have no problem transferring your home loan to another bank.
5. Ensure You Have All the Necessary Paperwork for The Transfer
While opting for home loan balance transfer , you have to submit a consent letter or a No Objection Certificate (NOC) from your current lender to the new lender requesting a home loan transfer. Once the new lender gets this, they will approve your loan amount and your old account will be closed. After this is done all your property documents will be handed over to the new lender and you must ensure that no documents required for home loan are being left behind.
6. Check the Credibility of the New Lender Before Switching
There are a whole bunch of banking and financial institutions in the market willing to lend you money at really attractive rates. But, how to select the most credible lender? Well, it is imperative that you read about their market perception and customer service before opting for the switch. As a home loan is a long-term commitment and the relationship with your new lender will continue for a long time, you need to find out if their current customers are satisfied with their services. Read their reviews and testimonials to ensure your new lender is trustworthy.
7. Read the Terms and Conditions Carefully
Since after the balance transfer your new home loan will be a completely new contract, so it is important that you read the papers carefully to ensure that you are not simply looking at the low-interest rate and missing other important points like hidden costs and charges.
While nobody wants to pay extra interest rates when lower rates are being offered in the market, you should consider all the above-mentioned factors very carefully before opting for a home loan balance transfer. A home loan balance transfer is a great way to bring down the interest outgo and channel your savings into other investment avenues. But is it the right decision? Your current lender may offer you lower rates when they see you leaving and that would not be such a bad deal as you will save all the transfer charges as well as the time and energy needed to get the balance transfer done.